Borrowing From—And Loaning To—Friends And Family

By cwaltersSeptember 21, 2007

Ah, what an awkward situation—over the phone, or whispered at your desk, or asked face to face over beers at your weekly hangout. What’s the best way to respond when someone you love (or at least like to some degree) wants to borrow money? And what if you’re the one in need? Betterbudgeting.com offers some advice on when to loan and when to figure out whether you’re just enabling a bad habit.

To begin with, says the tough-love Larry Wiener (or simply “Tough Wiener” as he will now be called), when you’re asked to loan money you should ask yourself whether you’re funding a continuation of a lifestyle or a change, and whether the change is one you want to fund. If you’re helping someone recover from a mistake he makes repeatedly, it might be better to let him learn his lesson the hard way; on the other hand, if your assistance can help increase the odds that he’ll improve his life—and if you’re confident he will be able to pay you back—then it’s a wise “investment.”

If you’re the one borrowing, pay special attention to how your actions could be perceived, says the UK Insolvency Helpline. If you’re seen wildly spending money on unnecessary purchases, you could sour what was a good relationship. Also, be aware that your ability to pay back a loan may directly impact the finances of the lender, so commit to making regular repayments according to terms you both agree to, and stick to it.

Ezine articles offers advice to entrepreneurs seeking start-up funds, but it applies to personal loans as well: gauge the way your potential lender says yes. “An apprehensive yes may mean yes because of your relationship. But otherwise it would have been no. You could allay that apprehensive yes by offering to secure the loan” with a car or other item. (Hey, nobody said borrowing money was supposed to be easy.)